Randy Weber

Guy Kawasaki posted How to Change the World: The Art of Distribution. It’s an interesting Biz Dev lesson for startups.

The underlying and important assumption in modern day distribution is the asymmetry of the arrangement. For most entrepreneurs distribution involves piggybacking on another organization with much greater momentum.

One of the tips he gives is to “Look for adjacency.” He uses eBay/PayPal, Linkedin/Simply Hired, and FeedBurner/TypePad as examples. Note that these are formal relationships, not where one party is simply sucking off of the other party using open APIs. Most important, he reminds startups to “focus on revenue.” This is the what’s in it for them advice that I always start with. “If your partner will make money, then the deal will probably happen.” He also points out:

 Look out for the other guy. The right perspective for distribution partners is: Let’s both make money. For sure, it’s not: How can I ensure that we make a ton of money and stick it to our partner? I have never seen a case where only partner makes money. Either everyone makes money or no one does.

Well put Guy. Get that formalized deal that works for both parties. Again, partnerships really haven’t changed much in the Web 2.0 world.

Fred Wilson at Union Square Ventures wrote a piece about Business Development 2.0 which he pretty much defines as biz dev via APIs. It sounds good, but isn’t a viable long-term solution.

Using the strategy put forth by the author, a start-up would be building a business around content and traffic from third parties and monetizing everything via Google AdWords or some other advertising network. Examples cited by the author include:

* YouTube makes it flash video player available via embed code on MySpace and their traffic takes off.
* TripAdvisor search engine optimizes its service and becomes one of the most popular travel services.
* Technorati hits delicious’ api for its tags and builds the web’s most succesful tag search service.
* Indeed crawls the Internet for jobs and builds a popular job service overnight.
* Kayak crawls the Internet for flights, hotes, and cars, and builds a popular travel service overnight.
* Qoop takes Flickr’s API and builds a Flickr printing service without ever engaging with Flickr’s team.
* Netvibes takes a few RSS feeds and builds a start page that looks as complete as MyYahoo overnight.

Nice for a business that has a handful of employees and no expenses, but it isn’t sustainable. Here’s the problem:

1.     No barriers to entry. Anyone can copy your business. Think about the example of the start page. Netvibes is competing with every major portal, as well as start-ups like Pageflakes, webwag, and protopage, with more popping up every day.
2.     No barriers to exit. Users can easily leave your business for the next big thing. Remember Friendster?
3.     Nothing of value is owned. You don’t own the content, nor do you own the advertisers. The eyeballs are yours, but without the content the eyeballs will go away. Without the advertisers, the money will go away.
4.     No control over your own destiny. Being completely dependent on “partners” (I use this term loosely) that have no contractual obligations to each other is dangerous. Content, traffic, or advertising “partners” could cut you off at anytime for any reason, like being acquired by a competitor, entering into an exclusive partnership with a competitor, suddenly viewing you as a competitor, or simply getting mad about something you’re doing with their content. Recent examples include YouTube entering into competition with Facebook, MySpace threatening YouTube, and Craigslist getting pissed at Oodle. If you’ve ever read Google or Yahoo’s terms of service for their advertising distribution programs, you know that they can pretty much change how their program works or cut you off at any time.

Biz Dev Classic may be slower, but it affords much more protection and stability for your business.